When I worked at equity.guru, I had a lot to say about Namaste Technologies.
Read it if you like, but it amounted to N being an exceptional promotion, run by passionate people who are doing some innovative things in the field of controlling their own narrative. I consistently called it over-valued, while cautioning that it has a great chance of becoming WAY over valued.
Since writing all that, Namaste has attracted more criticism and yet another round of financing. They’ve also received their long-awaited sales license for the Cannmart property, just in time for the Great Canadian Retail Legalization this past Oct 17th. They’ve changed auditors and released another quarter’s worth of financial statements.
One of the keys to Namaste’s success is the fact that the company comes at you with a wall of news. They treat every letter of intent and handshake agreement like it’s a bankable deal to supply the next Phish tour, and it’s done them well. We’re going to pick the story up on Sep. 24, when Namaste received a full blessing from Health Canada for its long-awaited “sales only” license, making it the only company licensed to sell weed to Canadians without growing it first.
Licensed to Ill
The ACMPR licensing process works something like this: A company files an application to be a producer of Marijuana. The application lists the facility where they’re going to grow and the staff that they’re going to use to grow it. Health Canada inspects the facility to make sure it meets code (proper security, safety measures, etc.), and does background checks on the staff to make sure they aren’t mobbed up. Once those inspections are passed, the applicant is an AMCPR licensee, but not yet allowed to sell the dope they grow. The company is allowed to grow a test crop, and if that test crop passes HC standards, the company is given the coveted sales license, and can then sell weed to medical patients and, as of October 17th, to the provinces, who can then sell to the general public.
The Cannmart sales license has been a central tenet to the Namaste story for quite some time. The company wants to be able to buy cannabis products from other licensed producers, and retail it to its patients alongside the various vapes and accouterments they sell now. Namaste have never spelled out much about the nuts and bolts of that plan. Originally I had assumed that it would buy in bulk, then break it into packages, pre-rolls, maybe process into oil… but they were pretty happy on September 18th to confirm that they would be allowed to buy pre-packaged, tested, ready-to-sell cannabis products, so it looks as though they want a license for a sort of a warehousing and drop-shipping facility.
Health Canada approved the license in principle some time ago (facility and staff), and Namaste started calling it a “sales-only” license despite the fact that selling weed was the only thing apart from growing it that they weren’t allowed to do. The green light they announced September 24 was highly anticipated by the Namaste faithful. “When will you get that license?” was a consistent question from shareholders in the company’s weekly live chats. We have to consider the securing of a full license to sell weed under the AMCPR a significant milestone for “Your Everything Cannabis Store™”.
The buildup ahead of it and the subsequent drop in both price and volume suggests that there were investors trading the buildup to the sales license, and that they sold on the news. That’s a decent idea that panned out, and it was born out of the fact that the license is in fact a crucial part of Namaste’s ongoing success. It’s the difference between Namaste being a web store that sells vaporizers and a web store than sells vaporizers and weed. How much weed they can sell is the question at the center of the next Namaste trade idea, and we’re going to get into that in a bit.
Gotta get that dough if you wanna make some bread
Having secured the crucial license, Namaste got to work raising money. They announced a bought deal financing on September 26th.
On the day the financing was announced, CEO Sean Dollinger spoke tearfully on youtube about having to put a lid on all public statements while the terms of the bought deal were being negotiated. It was a condensed episode of N420, but he still hit all the notes we’re familiar with, including encouraging his followers to spread the gospel.
It’s unclear why the weekly show couldn’t continue as the financing was being closed. Staying off the internet isn’t something that comes off as management’s idea; it feels more like Cannacord and Eight Capital telling them that it would be nice if they put the tent revival show on hold while they were the ones selling the securities if they didn’t want compliance to kill the deal.
The $51M financing was closed on Oct 19th after the terms on the warrants were adjusted. When the dust settled, a $3 unit of the N offering bought an investor a common share and 3/4 of a warrant to purchase another share at $3.15 for 60 months. But in the interim, there was drama.
On Oct. 4th, with Namaste off the air, noted short selling research outlet Citron Research released a scathing report covering some of the stuff I wrote about while I was at Equity Guru, and a lot more that I missed.
The Citron report asks good questions about whether the sale of US sub Dollinger Enterprises is actually an arms-length transaction as the company says it is, and notes that Sean Dollinger told everyone the sale would make N profitable by the summer of 2018.
The report also teases problems with Cannmart, but doesn’t go in to detail, and makes a valuation corollary to the recent sale of Vapour Group that pegs N’s valuation at $0.26/share.
Here Comes the Cavalry
Youtube-based analyst Intuitive Investor was quick to throw up a video addressing the Citron report, but he doesn’t address any of it in substance. He goes after head researcher Andrew Left’s character and frames it like a he-said-she-said, who-ya-gonna-believe? situation, which we consider a poor way to do equities analysis.
The fact that nobody in either the posting economy or the financial press bothered to laugh their ass of at the guy is the core of the reason Namaste is here in the first place, and the reason that you can never count N out as a near term buy.
Bag it Up
Namaste isn’t so much a company as it is a religion. The livestreams never fail to contain one of Dollinger’s sermons. An army of stock market neophytes crowd the comments sections and frame everything as an us v. them crusade. Intuitive investor’s response to Citron spoke of “beating” the firm and accused Left of timing the report to coincide with Namaste’s self-imposed “quiet period” (unlikely he cared). An army of emotional investors buried in a stock like this is something to behold, because they can always double down.
Dollinger never fails to thank his shareholders and acknowledge that they’re the reason for N’s success, and he’s absolutely right to.
Cannacord and Eight last raised money for Namaste this past February. Despite the fact that $2.55 paper was only in the money for a very brief period, it has never lacked for volume. A steady stream of retail fans have been actively engaged in this story, ready to put a bid under anyone who wants to sell, playing the long game and waiting for that license. So strong is the market for this stock, that those same institutions were able to go out and raise even MORE money from a market of investors keen to bet on Your Everything Cannabis Store finally put the sales infrastructure they’ve touted to work on some Cannabis.
It always comes down to “How Much?”
This comes down to how much weed Namaste can sell. Dollinger has made it clear that his projections of “$48 – $50 million” in top line revenue for this year and $100M next year exclude revenue from cannabis sales through Cannmart (Namaste booked $18 million in top line revenue for the 12 months ending in August), so the company is clearly expecting a bump in accessory sales to come along with a wave of cannabis product purchases.
I’m inclined to say that they’re going to need it, but I’m not sure they do. Dollinger & co. have been able to sell the sizzle for so long that there’s no reason to believe that they won’t be able to keep doing it indefinitely. As it stands, they’ve got a better shot at a NASDAQ listing than they do at competing with LPs on cannabis sales volume, and we’re going to take a closer look at that dynamic shortly.